Customer-Focused Service Guarantees and Transparency Practices (2018)

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10 The Need for Customer-Focused Public Transit Ensuring customer satisfaction is essential for businesses because a customer’s satisfaction with a particular transaction often determines whether the customer will return and whether the customer will describe the interaction in a positive or negative way to others. Particularly true for private sector and for-profit organizations, customers have choices and may choose to purchase goods and services elsewhere if they are not satisfied. If customers choose competitors, companies will see declines in revenue and profit and may ultimately even have to close. In the public sector, the connection between customer satisfaction and organizational stability and financial standing may not be as direct—particularly in public services that are largely, if not wholly, provided by a single public entity. When there is only one service provider (or even a handful of them), “customers cannot express their dissatisfaction with the service . . . by switching to another operator” (Schiefelbusch 2009, p. 6). However, there are several services and regions in which both the public and private sectors essentially compete for customers (e.g., package delivery and transportation). In the services where competition exists, public agencies may have to continually win customers’ loyalty. The increasing ability for customers to make alternative choices is especially apparent in the public transit space, where shared mobility and similar for-hire transportation services have entered the marketplace. Advances in technology and social media also have provided customers of both public and private services increased capability to voice concerns, provide reviews, and rate service providers. Because those venues for comments and ratings may be completely open to the public and sharable with others, the damage of a negative review can have far-reaching implications. Alternatives to public transit and easy tools for sharing personal experiences can provide significant impetus for public transit agencies to become more customer focused. However, there is value simply in improving the satisfaction of citizens who interact with public services— high-quality public services may help improve citizens’ quality of life. Being customer focused helps produce a positive experience for pub- lic transit passengers—a stated or unstated goal of many public transit agencies. Customer-focused public transit can take different forms and be manifested in many different types of programs and initiatives. Examples include: • Implementing mystery shopper programs (Miller 1995), • Improving the quality of transit service based on customer feedback (Miller 1995, Foote 2004), • Measuring performance from a passenger’s perspective (Kesten and Ögüt 2014, Morton et al. 2016). C h a p t e r 2 Literature Review There is value in improving the satisfaction of citizens who interact with public services—high-quality public services may help improve citizens’ quality of life.

Literature review 11 • Providing a service guarantee—including money-back guarantees (Giard 2002, Lidén 2004), and • Increasing agency accountability to the customer and the public (Adams 2015). Although there are several examples of transit agencies that have worked to become more customer focused, there is little understanding of the actual impacts customer-focused public transit initiatives have on public transit customers and transit providers. TCRP Synthesis 45 found that “the public transportation industry uses relatively few spe- cific methods to achieve customer satisfaction” (Potts 2002, p. 26). Of the 33 transit agencies that responded to the TCRP Synthesis 45 survey, only nine used some form of service guarantee, and two had a passen- ger bill of rights. The synthesis made no mention of customer-focused transparency as a customer-focused practice. This report focuses on two particular customer-focused practices and their relationship with each other: service guarantees and customer-focused transparency. Although these two practices are not codependent, they go well together: service guarantees provide a way for a transit agency to address an individual’s specific negative experience, and transparency provides a mechanism for a transit agency to present its efforts to improve its aggregate performance to a broad spectrum of public transit stakeholders (customers and noncustomers). Service Guarantees In most cases, customers have an implicit expectation that they should have a positive experi- ence with a service provider or get some remuneration, if not all of their money back. This is true for restaurants, retailers, services, and even vending machines. Companies have often surpassed this implicit expectation and provided service guarantees—explicit promises to customers that delineate exactly what customers can expect in the event services do not meet expectations. Although research on service guarantees has been under way for several decades, there is still significant debate on the exact definition and purpose of a service guarantee. Generally speaking, a service guarantee refers to a promise made by a service provider that a customer will experience a certain level or quality of service. A service guarantee may include as a part of that promise some form of recompense or remuneration for customers whose experi- ences do not meet the minimum level of quality promised by the service guarantee. The Role of Service Guarantees Lidén (2004) presents a summary of perspectives on the roles that service guarantees can serve (see Figure 3). First, some researchers state that a service guarantee’s main feature is to “restore customer satisfaction after a service failure” (p. 10). Second, other researchers state that service guarantees help customers understand the quality of the service or product before a pur- chase or utilization. In this case, the service guarantee helps customers choose a service provider and becomes a marketing tool. Third, some researchers blend both the marketing and restorative features of service guarantees and argue that guarantees help increase the appeal of a product or service before purchase and help recover customer satisfaction after a negative experience. Research suggests that service guarantees help increase not only customer confidence when deciding whether to make a purchase or pay for a service (Hogreve and Gremler 2009, Neugebauer 2009) but also satisfaction of customers who invoke the guarantee (Giard 2002, Lidén 2004). Lidén (2004) found evidence that the satisfaction of public transit customers who TCRP Synthesis 45 found that “the public transportation industry uses relatively few specific methods to achieve customer satisfaction” (Potts 2002, p. 26).

12 Customer-Focused Service Guarantees and transparency practices invoked the service guarantee and had their claim resolved in their favor were more satisfied than they were before the service problem had occurred. Service guarantees not only work directly on customer satisfaction but also indirectly improve customer satisfaction by focusing transit agency employees on improving service quality. That is, service guar- antees can serve as a quality control tool (Neugebauer 2009) and an impetus behind quality improvements (Giard 2002, Lidén 2004). For example, Giard (2002) stated, “The arrival of the [service guarantee] has mobilized [Société de Transport de Laval]. . . . In less than two years, the number of late bus arrivals has been more than halved, while the time required for processing applications and claims has been slashed by 40%” (p. 6). (Société de Transport de Laval [STL] is a public transit operator in the city of Laval, Quebec, Canada.) The available evidence suggests that service guarantees—particularly those that provide for customer remuneration—can play an important role in public transit by: • Helping decrease the perceived risk of choosing to take transit, • Providing a tool for transit agencies to maintain and improve public transit customer satisfaction when there are service problems, and • Improving service quality through increased transit agency employee commitments to quality. Structure of Service Guarantees There is debate not only on the main purpose and role of service guarantees but also on the best specific contents of guarantees. As discussed by McDougall et al. (1998), service guarantees contain both a coverage statement (what services or qualities of service are guaranteed) and an Figure 3. Potential roles of service guarantees in both prepurchase and postpurchase decisions. Source: Created by author, based on Lidén (2004). Service guarantees not only work directly on customer satisfaction but also indirectly improve customer satisfaction by focusing transit agency employees on improving service quality.

Literature review 13 action statement (what the customer will receive in the event the covered services do not meet the set standard). (McDougall et al. use the term “payout” instead of “action,” but the author of the current synthesis uses “action” to refer to any action taken by a provider to fulfill its service guarantee, whether or not the action includes financial compensation.) The coverage and action statements in a service guarantee may be defined or undefined (see Table 1 for examples). McDougall et al. found that some customers preferred guarantees with well-defined coverage and action statements whereas others found undefined statements more appealing. In an oft-cited article, Hart (1988) argues that service guarantees should be unconditional— that is, the service provider should not place restrictions on the guarantee, and customers who are dissatisfied with their experiences should receive remuneration regardless of whether the cause of the service issue was within or without of the provider’s direct control. Hart also states that service guarantees should be: • Easy to understand and communicate, • Meaningful, • Easy to invoke, and • Easy and quick to collect on. Research continues to better define customer preferences for the content and impact of service guarantees across different private- and public-sector industries (e.g., see Lidén and Skålén 2003). In this synthesis on public transit, service guarantees are defined as any explicit commitment to a quality customer experience, regardless of whether the agency compensates or responds directly to individual customers in the event the commitment is not met. This definition of service guarantee is relatively loose and allowed transit agencies with or without statements labeled as a “guarantee” to be included in this synthesis. For example, some transit agencies have what Neugebauer (2009) considers merely a “quality or performance promise” (p. 36)—in other words, a statement that promises a certain level of service without any specific restitution pro- vided to the customer for promises not kept. In these cases, the transit agency may guarantee a specific attribute of a transit trip (e.g., reliability, cleanliness) but not define the specific param- eters by which quality would be defined. These guarantees, by their nature, also make it nearly impossible to offer an action to restore customer confidence because the transit agency is not explicit about what it deems acceptable performance. Other transit agencies have service guarantees that are part of an official passenger charter or similar stand-alone policy that lists the transit agency’s commitments to the customer. In many cases, these service guarantees define both the attribute of service and the expected level of quality (e.g., “trains will arrive in 15 minutes of the schedule”) but do not necessarily establish an action in the event service does not meet the standard. Some public transit service guarantees provide for customer remuneration (e.g., a refund or credit toward future transit fares) or other action in the event the service does not meet Coverage Defined Undefined Action Defined Delivery within 30 minutes or your money back. Satisfaction guaranteed or your money back. Undefined Delivery within 30 minutes. Period. Satisfaction guaranteed. Period. Source: Adapted from McDougall et al. (1998). Table 1. Example service guarantees with defined and undefined coverage and remuneration statements.

14 Customer-Focused Service Guarantees and transparency practices the level of quality promised in the guarantee (e.g., “Trains will arrive within 15 minutes of the schedule or your ride is free”). This form of guarantee was the rarest found during the literature review and the rarest found in the transit agency survey. Most service guarantees that do provide an action have several limitations or exclusions under which the guarantee does not apply (e.g., delays caused by extreme weather are not eligible for the guarantee). To demonstrate how these forms of service guarantees fit into the existing literature, several example service guarantees were developed for this report and categorized according to a modified version of McDougall et al.’s (1998) taxonomy for service guarantee structures (see Table 2). Because some transit agencies define what a customer should experience (e.g., reliability) but not the precise definition of that experience (e.g., trains will arrive within 15 minutes of the schedule), a type of coverage statement was added that allowed for defining the covered attribute of service but not defining the expected level of quality. A type of action statement was added called “no action” to reflect that transit agencies make service guarantees but rarely back them with actions to take when the guarantee is not met. Most transit agencies had service guarantees with defined attributes but undefined quality levels and no defined actions (see Chapter 3). The lack of standardization of service guarantees across transit agencies likely demonstrates the complex nature of the issue and the apparent dearth of resources available to transit agencies to make informed decisions about whether and how to construct their service guarantees. Customer-Focused Transparency Expectations and Variations of Transparency As with expectations for high-quality service, citizens are increasingly expecting transparency— particularly from governments and public service agencies. Transparency has been defined in many ways but is best summed up by Grimmelikhuijsen and Welch (2012) as “the disclosure of information by an organization that enables external actors to monitor and assess its internal workings and performance” (p. 563). Sharing information with the public may be done for many reasons: for example, to maintain political competitiveness (Bearfield and Bowman 2017), adhere to a formal rule or regulation, increase public participation (Welch 2012), or as part of a broad transparency strategy. Although the rationale may vary, transparency has been found (in some cases) to result in actual improve- ments in service performance and financial management (Cucciniello et al. 2017) and citizen satisfaction (Ma 2017). Coverage Defined Attribute and Quality Level Defined Attribute but No Quality Level Undefined Attribute Action Defined Trains will arrive within 15 minutes of the schedule or your ride is free. Trains will be reliable or your ride is free. You’ll be satisfied with your trip or your ride is free. Undefined Trains will arrive within 15 minutes of the schedule. Contact us if you experience a problem. Trains will be reliable. Contact us if you experience a problem. You’ll be satisfied with your trip, and contact us if you aren’t. No Action Trains will arrive within 15 minutes of the schedule. Trains will be reliable. You’ll be satisfied with your trip. Source: Adapted from McDougall et al. (1998) and informed by the author’s literature review. Table 2. Example transit service guarantees for all types of coverage and action statements.

Literature review 15 Organizations can choose the extent of their transparency initiatives by determining trans- parency type (data, policy, or both), topic (e.g., finance, human resources, maintenance), time period (days, weeks, months, or years), and level of detail (aggregated versus transactional). Not surprisingly, there is a great deal of variability around the extent to which local governments and other public organizations share information with the public (e.g., Cucciniello and Nasi 2014, Bearfield and Bowman 2017). Customer-Focused Transparency in Public Transit Transit agencies also exhibit this variability of transparency, so not all transit agency transparency is necessarily customer focused. Customer- focused transparency is not a well-defined term in the literature; how- ever, in this report, the term refers to any open and public reporting updated at least annually that includes customer-focused metrics. Customer-focused metrics are those that reflect some aspect of the customer experience, when either riding transit or interacting with the transit agency. Examples of customer-focused metrics are listed as metrics from the customer point of view in TCRP Report 88 (Nakanishi 2003). In addition to customer-focused transparency, a transit agency may be transparent in other ways: for example, by opening its schedule and real-time data to the public using standardized data sets such as the general transit feed specification (e.g., see Rojas 2012), or opening its financial data to the public [e.g., Capital Metro in Austin, Texas, reports its budget, audits, and even financial transactions to the public (Capital Metro n.d.)]. Although financial and service information can have value for transit customers, these data do not portray the quality of transit service and do not reflect the experience of customers. This synthesis project did not accept as customer-focused transparency any transparent reporting of finances, ridership, or other metrics that did not measure some aspect of the customer’s experience. Last, many agencies are required to report their performance data to a board or other oversight body, which often maintain openness to the public through meeting agendas and report contents. Transit agencies that report data only as a part of a board or oversight process and not as a stand- alone effort may not be included in this synthesis because reports to oversight bodies may not be easily found on a transit agency website. In addition, reporting only to oversight bodies may manifest a transit agency’s wishes to meet mandates without actually having a strategy for being intentionally transparent. Resources Available to Transit Agencies Although extensive research has been done on service guarantees and transparency, there is still little available in resources for transit agencies to understand best practices, implications, and implementation strategies. Previous relevant transit-specific guidance includes • TCRP Synthesis 45: Customer-Focused Transit: A Synthesis of Transit Practice (Potts 2002); • TCRP Report 88: A Guidebook for Developing a Transit Performance-Measurement System (Nakanishi 2003); • TCRP Report 141: A Methodology for Performance Measurement and Peer Comparison in the Public Transportation Industry (Ryus et al. 2010); • National Rural Transit Assistance Program’s Customer Driven Service: Learner’s Guide (National Rural Transit Assistance Program 2011); and • The Canadian Urban Transit Association’s (CUTA) Introducing a Passenger Charter: Your Guide for Success (CUTA 2013). Customer-focused metrics reflect some aspect of the customer experience, when either riding transit or interacting with the transit agency.

16 Customer-Focused Service Guarantees and transparency practices Although this handful of resources exist, they may not deal with specific topics (e.g., TCRP Synthesis 45 did not include transparency as a part of customer-focused transit), may be out- dated, or may be too general to be a ready and relevant resource to transit agencies specifically con sidering implementing a service guarantee or customer-focused transparency. The technol- ogy supporting transit agency services, passenger interactions, and transparent reporting has changed significantly in the last several years, and the operational context in which transit agencies operate and the mobility options available to potential transit customers look much different now than they did just a few years ago. As the literature review demonstrates, customer-focused service guarantees and transpar- ency may be beneficial, but they have many complexities, mixed theoretical underpinnings, and empirical evaluations. This synthesis builds on and extends previous transit-specific research to provide transit practitioners a snapshot of the current state of the industry concerning service guarantees and customer-focused transparency, including their prevalence, implementation strategies, benefits and challenges, and important lessons learned.